INSUBCONTINENT EXCLUSIVE:
Anand Rathi has a buy call on Dalmia Bharat with a target price of Rs 3,300.
The current market price of Dalmia Bharat is Rs 2,701.05
Time period given by the brokerage is one year when Dalmia Bharat price can reach the defined target
View of the brokerage on the company:With sales in 22 states across India and driven by rising demand, Dalmia reported firm volume growth
Being dominant in the North-east, it aims to further strengthen its position through business restructuring and acquisitions
The growing share of its premium products and its proposed WHR expansion are other positives
As one of our top picks, we retain our Buy on the stock, with a target of Rs 3,300.
Healthy demand: With 25m tpa (south 12.1m, east
north-east 12.9m) and 5 per cent of overall cement capacity, Dalmia is likely to clock a 13 per cent volume CAGR over FY18-20, helped by
growing demand because of various government projects (affordable housing) and rail road and irrigation projects
We expect its revenue to come at an 18 per cent CAGR over FY18-20, boosted by the rising proportion of its premium products
EBITDA/ton for the quarter declined 16.7 per cent y/y to Rs 1,162 on higher production cost (up 24 per cent y/y) due to rising prices of
pet-coke, slag and diesel
Expected savings from its proposed 16MW WHR plant, its measures to rationalise the lead distance and to replace high-cost fuel (pet-coke)
with lignite and coal, and the increasing proportion of composite cement would boost its EBITDA/ton to Rs 1,296 by FY20.
Business outlook:
In view of its capacity expansion in the east (7.8m tons), acquisitions (Kalyanpur and Murli) and the installation of a WHR plant,
management has planned capex of Rs 50bn for the next three years
Further, the OCL merger is expected to be complete by Q2 FY19
We expect PAT to clock a 26 per cent CAGR over FY18-20
Further, owing to its rigorous capex plan, we expect its balance sheet to be leveraged.
Valuations: Our revised TP of Rs 3,300 is based on
11x FY20e EV/EBITDA, reflecting an EV/ton of $157
Risks: Rising prices of pet-coke and diesel.
